December 14, 2012

Branding Small through Equity Crowdfunding

Craft breweries thrive off an image of independence and anti-big business.  Indeed, anti-big business is written into the  Brewers Association’s very definition of a craft brewery: to constitute a craft brewery, an alcoholic beverage company that is not a craft brewery (think InBev and MillerCoors) cannot own more than 25% of the company.  Thus, craft breweries literally define themselves by what they are not.  Yesterday’s article by the Brewers Association reinforced the craft industry’s general suspicion of Big Beer.

Breweries attempting to finance expansion are currently faced with a Catch-22.  There are numerous examples of established breweries being turned away by banks.  In light of the tough lending environment, where are breweries to turn for capital to fund expansion?  Big Beer is increasingly seeking to fill this void.  InBev’s purchase of Goose Island is well documented.  However, as CEO Graham Mackay recently explained, MillerCoors is taking a more subtle approach with its Tenth and Blake craft beer division.  Tenth and Blake’s strategy is to provide breweries with the capital needed for expansion in exchange for equity stakes that do not exceed 25%.  Thus, breweries receive the capital they need without having to sacrifice their label as a craft brewery.  This would appear to be an attractive option to craft breweries, and indeed Tenth and Blake CEO Tom Cardella made a recent public comment that craft breweries are calling him to initiate conversations.

Big beer isn’t going away and will be involved in the craft sector.  Accepting that as fact, I respect the way Tenth and Blake has gone about things.  I also find it hard it fault breweries for exploring every option necessary to put great beer in my glass. Nevertheless, as the recent BA article demonstrates, any involvement of Big Beer could jeopardize a brand’s image of independence and anti-big business.  For this reason, breweries would almost certainly choose to source capital from elsewhere if other viable options existed.

A new option is almost here.  Breweries will soon be able raise up to $1 million in capital per year by selling shares online to the general public.  

Equity crowdfunding is an alternative source of capital that is more consistent with the craft beer brand.  Rather than sourcing capital from an uninterested institutional lender or a big corporation, equity crowdfunding allows a brewery to source capital from its passionate followers.  What once was only available to the very wealthy will now become possible for the average investor and consumer.  This democratization in investing aligns perfectly with craft beer brands.  Thus, equity crowdfunding presents a unique opportunity for breweries to advance their brand through the process of raising capital.

Equity crowdfunding will not only benefit cash strapped medium sized breweries.  As Kim Jordan described at the recent Brewbound conference, the New Belgiums and Sierra Nevadas in the industry face the challenge of being perceived as “too big.”  How do you grow to keep up with demand and yet retain that same small feel that consumers fell in love with?  Equity crowdfunding will be a way for the bigger craft brewers to brand small by bridging the gap and inviting consumers to become an actual part of the brand.  For these brewers who have no problem accessing $1 million in capital, equity crowdfunding is a strategic branding decision.  At the end of the day, equity crowdfunding will be attractive to both small and big craft breweries for the same reason: cultivating an independent and grassroots brand.

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